IAC: LendingTree to spin off as independent company

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LendingTree, RealEstate.com and other real estate-related businesses owned by InterActiveCorp will be spun off as an independent publicly traded company through a major reorganization, company officials announced today.

IAC, which also owns Home Shopping Network, Ticketmaster, and online sites Match.com and Ask.com, among many other businesses, plans to divide its broad enterprise into a total of five publicly traded companies, a move that company Chairman and CEO Barry Diller says is intended to bring more clarity to the performance of IAC’s various business units.

“I’ve always believed our complexity and many mouthfuls of sentences to explain who we are and what our strategy is have hampered clarity and understanding with all our constituencies, particularly investors,” Diller said in a statement. “Each of these spun-off businesses is in fact a distinct business sector, and each will benefit from standing on its own, with its own capital structure, its own currency which will enhance its ability to attract and retain superior talent and make acquisitions, and a focused story investors can clearly understand and buy into.”

Under the reorganization, the five independent companies will be:

LendingTree, which will also include RealEstate.com, Domania, GetSmart, Home Loan Center and iNest.

Interval International, which will include CondoDirect, Resort Quest Hawaii and VacationSource.com.

Diller will continue as chairman and CEO of IAC, and Bret Violette will continue to serve as president of RealEstate.com. C.D. Davies will continue to serve as CEO of LendingTree.

The company announced that the transaction is subject to certain conditions, such as final approval by IAC’s board and the effectiveness of documents that must be filed with the U.S. Securities and Exchange Commission. The proposed spin-offs are expected to be completed in the second or third quarter of 2008.

Also today, the company also announced a five-year advertising deal with Google that is worth an estimated $3.5 billion. Diller said of that deal, “I couldn’t imagine another sector that has more wind at its back than online advertising. There is no question Internet advertising is effective. It’s absolutely trackable.”

Each company will have separate boards and a chairman, Diller said during a conference call today, “And I will probably be involved at that level or some level with one, maybe two of the spun-off entities — but not more than that.”

While Diller noted that the companies “can be sold once they are spun out,” he also said that company officials have been “careful not to have any discussions” that would jeopardize the spin-offs.

Diller also said that he began to conceptualize the reorganization during the summer, and the process was driven by his own frustration and the frustration of investors and others that IAC’s complexity may have clouded its overall valuation.

He cited he example of the poor performance of the real estate and lending market, and how that can obscure the company’s more productive businesses. Last week, IAC announced a $5.6 million loss in LendingTree operations and a $4.8 million loss in the company’s real estate operations in the third quarter, while the entire company had net income of $71.8 million for the quarter. Real estate services include company-owned real estate brokerage operations and lead-generation services.

Diller said that problems in the credit markets did not play into the company decision to pursue the spin-offs. “We’re strongly net cash positive,” he said.

The IAC board is unanimously in favor of the spin-off plan, he also said. “There are no regulatory issues, there are no tax issues. We can complete these spin-offs either with or without a shareholder vote. We’re going to do this.”

Spin-offs are not a new phenomenon for IAC. In 2005, IAC completed a spin-off of online travel company Expedia as a separate publicly traded company. IAC had bought a controlling stake in Expedia in 2002 and purchased the remaining stake in 2003.

Cendant Corp., a large corporation that had operations in the real estate, hospitality and travel sectors, also split into several separate companies last year. Cendant’s real estate services division broke away to become Realogy Corp., an independent publicly traded company formed last year.

That company, with company-owned and franchise real estate brands including Century 21, Coldwell Banker and ERA, among others, was acquired this year by an affiliate of private equity firm Apollo Management LP.

IAC’s shareholders will own 100 percent of the equity in all five companies at the conclusion of the spin-offs, according to the company announcement, and the transaction is expected to be tax-free for IAC and its shareholders.

Wall Street has reacted positively so far to the announced spin-offs: IAC’s stock was trading at $31.52 per share as of 1:49 p.m. Eastern Time today — up about $1.90 or 6.4 percent compared to Friday’s closing price per share.

In its third-quarter earnings report, IAC reported that LendingTree revenue was $63 million in the third quarter, down 41 percent compared with $106 million in third-quarter 2006, “primarily due to fewer loans sold into the secondary market, lower revenue per loan sold and fewer loans closed at the exchange.”

The decline in revenue from all home loan products was “driven by the overall mortgage market deterioration as well as the decline in real estate values,” the company reported. LendingTree’s quarterly loss of $5.6 million compares with net income of $15.2 million for the same quarter last year.

LendingTree announced in May that it laid off about 440 workers, or 20 percent of its work force, in response to falling revenue and loan production.

Meanwhile, the company reported that its losses in real estate brokerage and lead-generation services reflect “fewer closings at the builder and broker networks, partially offset by increased closings at the company-owned brokerage.”

RealEstate.com announced in August that it was phasing out its subscription-based lead-generation business. The company’s lead referral service to brokers, which is based on fees paid at closing, was unaffected.

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